There may finally be light at the end of the tunnel for those people who have been caught up in failed PC firm Tiny's warranty fiasco.

All customers, whatever method they paid by, will be protected.

When Time Computers bought out rival Tiny, back in January, it promised to honour all warranties, but it did so a little hastily.

When it purchased the assets from creditors Grant Thornton it believed all the warranties had been insured, which was apparently confirmed at the time by Time's legal eagles at Ernst & Young.

It has now come to light that Tiny did not pay the last six months' premiums, because payments were made 180 days in arrears. This has left Time with inadequate cover to fulfill the conditions of hundreds of warranties.

"This is another example of the mismanagement of Tiny," said Time's PR manager Colin Middlemiss. "We were told by the previous management that premiums had been paid and that the warranties were insured. This is an issue we will be taking up with the previous management."

Time later found out that only repairs and parts were insured; no provision had been made for other areas, such as delivery or telephone support.

"This shortfall would cost us millions to cover," added Middlemiss.

Ernst & Young was not prepared to comment.

According to legal sources, if it's proved that Tiny's managers did lie or purposely withhold information they will certainly be liable for breach of contract. It is also possible they could be charged with misrepresentation, a criminal offence and therefore liable to imprisonment.

If this is the case, things could get even worse for Tiny.

The second problem for Time was that Tiny had paid all the funds raised from warranties directly into its own company bank account, which had by then become a black hole of debt.

Time itself and other competitors, such as Dixons Group, operate so-called 'ring- fenced' warranties, whereby the funds are paid into an external account managed by trustees. If the business then gets into difficulties all the warranties are covered by this separate fund.

"There is no law which demands monies are held in independent bank accounts," said a spokesman at the Trading Standards Institute. "Although cases like this perhaps highlight the need for that."

So the question is: where does Tiny's inadequate handling of warranties leave its customers?

Time has now promised it will honour all warranties on goods paid for by cash and cheque, which is fairly unusual in this situation, as those people who pay by cash are usually offered the least protection.

First National Tricity, the company responsible for Tiny's finance scheme, has also accepted its liability and will be ensuring customers receive the services they were promised.

But the situation is somewhat more confusing with credit card customers. Time's original statement to honour all warranties was taken by credit card companies to mean that Time would foot the bills.

Time has now told all credit card customers to take the matter up with their credit card companies, but some of these companies are still refusing to hand over cash.

Under section 75 of the Consumer Credit Act 1974, all credit card transactions over £100 are insured.

"Under the act the credit card companies are jointly and severally liable to cover all transactions over £100," said Alan Stevens, legal expert at the Consumers Association. "Providing the buyer had proof of purchase, if the company they bought the goods from will not pay up, then the banks have to."

So far the Royal Bank of Scotland (Tiny's acquiring bank) Barclaycard and NatWest have said that if customers have a lost or broken Tiny PC they will refund payments. But in order to receive a full refund customers need to provide original invoices and receipts, which according to Time, many do not keep.

"If a customer has a problem with their PC they need to contact us and we will see how we can help them. We are not shirking our responsibilities," said David Outhwaite, spokesman at the Royal Bank of Scotland.

When electronics store Tempo went bust last month, leaving customers in a similar situation, the credit card companies jointly paid Dixons, which had taken over Tempo's warranties, a set amount to cover them.

"The precedent is there for the credit card companies to follow. It would be far better for customers to have protection than for them to have to return their PC," said Time's Middlesmiss.

"Obviously Tempo were putting a more attractive deal on the table," said a spokesman at Barclays.

The Royal Bank of Scotland, which dealt with all Tiny credit card transactions, said it had not ruled out following the precedent.

"We are in talks with Time and as soon as we know exactly what the situation is we will let customers know. We haven't ruled anything out at this stage," added Outhwaite for the RSB.

Time and the Consumers Association recommend that all customers contact their credit card company directly. If companies do not pay up, consumers can take legal action.

Customers affected should contact TotalCare, Time's support company, on 08708 303 288, or call their credit card provider directly.